Thread by @profalanriley1

1.The European Commission’s commitment to the energy transition is not in doubt. However, some of its proposed green measures are counter-productive. One good example is in respect of the Energy Charter Treaty (ECT). see my latest CIDOB article here: cidob.org/en/publication…

2. The ECT is the only multilateral investment treaty. It is a key mechanism to mobilise the immense amount of private capital necessary to deliver the global energy transition.

3.Yet the Commisson has indicated that unless its own green 'reforms' are accepted it will seek to withdraw the EU & its MS. This is positively counter-productive to the energy transition. The EU should be seeking to increase the number of states joining the ECT not reduce them

4. The ECT could play a key role in the global energy transition because of the scale of capital that needs to be mobilised. The Intern't Energy Agency (IEA) estimates that in order to deliver that transition and limit the rise in temp we will need a vast capital mobilisation

5. The IEA estimates a need to increase investment in clean energy from $0.9 trillion a year in 2019 to $2.7 trillion a year in 2030. It also estimates that most this capital call (70%) will be from the private sector.

6. The core of theECT is its investor protection provisions which ensure that if an investment is expropriated by the host state or subject to unfair treatment amounting to expropriation it can sue before an indepn't arbitration tribunal & recover the full value of its investment

7. This protection is vital if huge amounts of private capital is to be mobilized globally to deliver the transition. Practically it is not possible for that capital to be delivered without such an international investment guarantee protecting investors from expropriation.

8. In theory private investors could rely on the judicial systems of the host state to protect their investments. However, outside North America and Western Europe and some parts of Asia/Australasia the rule of law is not what it should be.

9. The reasons for the weaknesses of domestic legal systems are varied: underfunding, bureaucratic delays, susceptibility to state pressure or outright corruption-these shortcomings separately & sometimes cumulatively undermine investors willingness to finance the transition

10. The European Commission however focusses on types of green ‘modernization’ of the ECT which would have marginal impact on the transition while actually threatening to significantly undermine the transition in practice.

11. one example is its commitment to remove fossil fuels from the investment protection provisions of the ECT. This commitment ignores the fact that the ECT is climate neutral it provides protection to all forms of energy production.

12. Historically most of the investment protected under the ECT has been in fossil fuels. However, with the collapse in price of renewables, utility solar pv is now providing the cheapest electricity ever generated, capital is now shifting rapidly from fossil fuel to renewables

13. Overall since 2010 utility solar prices have fallen 80% and onshore wind 40%. This price collapse underpins the analysis of DNV’s annual Energy Transition report that peak investment in fossil fuel was reached in 2019. Its now all downhill for fossil fuels.

14. The Comm is in effect fighting a climate battle that has already been won. With energy neutrality already in place in the ECT, competitive renewables will increasingly deny access to capital to fossil fuels. There is no need to spend precious political capital on this battle

15. It is also open to question why the Comm would seek to prohibit fossil fuel investment. The decarbon process will run from coal to gas and renewables; then with renewables predominating and gas existing solely as a backup; then to renewables, combined with hydrogen &batteries

16. Some gas infrastructure will clearly be required to assist in the process of decarbonization. An absolute prohibition on ECT protection on capital investment into gas infrastr undermines the transition. Is the Commission trying to promote a wind/solar plus coal solution?

17. There is also an energy security issue here. Although the CE European gas market is more interconnected than it was in 2010 it is far from complete. Seeking to undermine investment in gas infrastructure could lock parts of CE Europe into continued gas dependence on Russia

18. A better policy surely would be to support investment into gas infrastr as long as it is future proofed so it could later be used for hydrogen transmission. The EU aim here should surely be to ensure both supply security & actual delivery of the transition.

19. It is also questionable as to why the Comm is demanding as part of its ‘modernization’ prog that the ECT be repurposed to become the enforcement mechanism of the Paris Agreement. This will involve a new section to the ECT which will create a state to state dispute mechanism

20. The Comm would then be able to bring cases against ECT members who fail to comply with the Paris Agr'm. Many of the ECT state parties may feel that the Comm is trying to transform the ECT into something that it was never designed for & for which they have never signed up.

21. In order for the ECT to be able to play its role of mobilising capital globally it needs to expand its membership well beyond the current number of 53 members. Does repurposing the ECT to enforce the Paris Agreem't help or hinder its expansion?

22. The expansion of the ECT is no small point. It is vital. As the rule of law is weakly applied globally how is capital going to be mobilized to deliver the transition? Global temp will not be capped if the transition only occurs in states with strong rule of law cultures

23. States without a strong rule of law tradition may of course have or seek to establish a range of bilateral investment treaties (BITs) with states which traditionally are significant sources of capital. This is though inefficient as it requires signing up to numerous BITs.

24. The ECT by contrast has the potential to be an energy investment one stop shop for the global transition. It also provides greater weight and influence for capital receiving countries than an ordinary BIT.

25. For another point overlooked by the Commission is that unlike BITs the ECT brings both capital providing and capital receiving states together. The ECT process provides more influence into its development and governance of capital receiving states than any BIT process.

26. It is also clear that there are a range of alternative measures that can be brought to bear to reinforce the obligations of the Paris Agrem't, from carbon border adjustments to protocols to the Agrem't to new enforcem't treaties (much more possible now with the new US gov

27. The Comm's modernization proposals are also very likely to fail. The ECT is adopted under the normal Int'nl law principles. In other words unanimity is required for any amendm't. Japan, an ECT member has already indicated it opposes any substantial change to the treaty.

28. What surely the Comm should not want to do is to undermine the ECT that could be a key mechanism to deliver the global transition while not actually delivering any improvement to the Paris Agrem't. What the Comm is currently proposing amounts to lose, lose for the climate.

29. The Comm needs to urgently rethink its modernization programme. It should I argue focus on expanding the green scope of the ECT (eg providing a broader legal basis for renewable energy investment) & otherwise support more not less states joining the ECT. Ends.